Pension plan terminations: Minimizing cost and risk

Size: px
Start display at page:

Download "Pension plan terminations: Minimizing cost and risk"

Transcription

1 Pension plan terminations: Minimizing cost and risk Vanguard commentary May 2011 It is well understood and accepted these days that the nature of a pension plan s liability affects its investment strategy which is why liability-driven investing (LDI) is finally taking hold as a strategy for these plans. A better understanding and wider application of LDI may have saved some pension plans if it had been applied earlier, so it s somewhat ironic that LDI is an equally important strategy when a plan sponsor is considering terminating a plan. Note that terminating a pension plan is a step beyond just closing it to new entrants or freezing the benefit accruals. In a plan termination, all of the benefits are paid out, either as lump sums for participants who choose that option or through a group annuity purchase for those who select that alternative. Authors R. Evan Inglis, chief actuary Jeffrey Sparling, senior investment consultant We estimate that about 40% of defined benefit (DB) pension plans were fully frozen at year-end A fully frozen plan adds no value to a benefits program and still costs money to maintain, so many of these plans are likely to be terminated in the next several years provided they can achieve the full funding that s required for termination. Many of these plan sponsors are also waiting for rule changes related to lump-sum distributions to be fully phased in at the beginning of 2012, which will make lump sums less expensive. This paper discusses the financial preparation and strategies that need to be considered as part of terminating a pension plan. Most sponsors with fully frozen plans should begin thinking about these issues as soon as possible, even if terminating the plan is not imminent. 1 Based on Government Accountability Office, Defined Benefit Pensions: Plan Freezes Affect Millions of Participants and May Pose Retirement Income Challenges, July Connect with Vanguard > vanguard.com

2 Benefits paid at termination will be higher than the PPA funding target Before terminating a pension plan, a plan sponsor must fully fund all of the participant benefits that are earned as of the time of the termination. All the benefits are then paid out, either as lump-sum payments or by purchasing a group annuity contract from an insurance company. Because insurance companies must charge for taking on risk, as well as for administration, the cost to buy annuities for a termination is significantly more usually 10% to 30% more than the funding target while the plan is still operating, as defined in the Pension Protection Act (PPA), calculated using spot interest rates. (The PPA funding target is similar to the projected benefit obligation or PBO.) In March 2011, long AA corporate bond rates had yields around 5.75%. 2 Meanwhile, an insurance company might use an effective discount rate of about 4.25% to calculate the premium for an annuity purchased as part of a plan termination. For a pension plan with duration of 12 years, this means the additional cost to terminate the plan by buying annuities for all participants could be about 18%. Lump-sum payments for participants may also be more expensive than the amount included in the PPA funding target, depending on the actuarial assumptions used. But lump sums are getting cheaper. Before the PPA rule that became effective in 2008, lump-sum amounts were determined using 30-year Treasury yields. Because Treasury yields are low compared with yields on other bonds, lump-sum amounts have been generous (i.e., larger than they would be if the value were calculated using higher yields). 3 The new PPA rule introduced corporate bond yields as the standard for calculating lump-sum values, and this rule is being phased in over five years, from 2008 through Plans that may be terminating in the next several years have many considerations related to this rule change. 4 In general, the change will make DB lump-sum payments less valuable for participants and cheaper for plan sponsors. This means the total cost for terminating a pension plan will be lower going forward. Let s look at a typical plan termination and see how the liability is ultimately determined upon distribution of the assets. Settling with retired participants The usual practice for settling with retired participants is to buy annuities from an insurance company that provides payments under the same terms as the pension plan (life annuity, joint and survivor annuity, etc.). As we noted previously, because insurance companies take on significant risk and administrative functions when they take over responsibility for pension payments, they calculate liabilities more conservatively than is required under accounting rules or under PPA. Typically, the cost to buy an annuity for a retiree will be about 110% to about 120% of the ongoing PPA funding target for this group. Although it is not required, it is possible to offer retired participants the option of a lump-sum payment equal to the present value of the annuity they are receiving. While this is not commonly done, it could become more common in coming years as lump sums become more cost-effective. In any case, participants always have the option to receive the annuity they have earned, and many retirees are likely to continue their annuity payments even if the lump-sum choice is offered. For our purposes, we ll assume that retirees have their benefit obligations settled with an annuity purchase. 2 Source: Citigroup Pension Liability Index. 3 When lower yields are used to calculate a present value, the present value is bigger. To see this, imagine that a friend owes you $100 next year. If you can earn 6% interest in a secure account (savings account, CD, or Treasury bond) then you d be willing to accept about $94 today instead of the $100 next year. However, if the secure account only paid 5%, you d ask for about $95 today from your friend to settle his/her promise to you. The interest rate dropped from 6% to 5%, which caused the present value of your friend s promise to increase from $94 to $95. When interest rates go down, present values go up, and vice versa. 4 These considerations are discussed in the Vanguard publication, Are some defined benefit plans approaching the end of the road?, November

3 Give active and terminated-vested participants a choice Some pension plans offer lump-sum payments to their participants on an ongoing basis, and that option will be available when plan assets are distributed upon termination. Other pension plans introduce a lump-sum option once they decide to terminate the plan. Both active participants and terminated-vested participants can be offered the option of a lump-sum payment, rather than a deferred annuity that begins at retirement. However, they should still have the option to select an annuity and, because lump-sum payments will be less generous than in the past, more participants may take the annuity option. But data suggests most participants will still probably choose a lump sum. As we noted previously, once 2012 rolls around, the lump-sum amount that is equivalent to the annuity benefit a participant has earned will be calculated using corporate bond yields. Since corporate bond yields are also used by actuaries to calculate pension liability, the cost of the benefits paid out as lump sums when the plan is terminated will be about the same as the PPA funding target. In some plans with generous early-retirement provisions, the cost of a lump-sum option at termination may be even lower than the ongoing plan liability, because the value of early retirement subsidies or supplements does not need to be included in a lump-sum payment. Some active and terminated-vested participants will still choose to keep the annuity payments they earned, and the plan will need to purchase annuities from an insurance company to provide for that option. The annuities for this group are likely to be even more expensive, relative to the ongoing liability, than is the case for retirees. This is because of uncertainty about when these participants will retire and the very long-dated nature of the liability, both of which make it difficult to hedge (reduce) risk for this liability. Typically, annuities for this group will cost 115% to 130% of the PPA funding target. A hypothetical example of what termination can cost Let s look at a hypothetical situation to see how this might play out and get a sense of how much it really can cost to terminate a plan. (See Figure 1, page 4.) Assumptions PPA funding target for retirees: $40M. PPA funding target for active and terminatedvested participants: $60M. 100% of retirees get annuities at a cost of 15% more than the PPA funding target. 25% of active/terminated-vested take an annuity at a cost of 30% more than the PPA funding target. 75% of active/terminated-vested take a lump sum. Retirees Active and term-vested participants who choose annuities Active and term-vested participants who choose lump sums Total liability Participant group All retirees receive annuities 25% of actives and term-vested 75% of actives and term-vested PPA liability $40M $60M x 25% = $15M $60M x 75% = $45M $100M Additional cost for buying annuities +15% $40M x 15% = $6M +30% $15M x 30% = $4.5M N/A $10.5M Plan termination liability $40M + $6M = $46M $15M + $4.5M = $19.5M $45M $110.5M 3

4 So in this hypothetical situation, the liability for terminating the plan is about 10.5% higher than the PPA funding target would be while the plan is still maintained by the plan sponsor. In other words, the plan would need to have assets equal to 110.5% of the PPA funding target before there would be enough money to terminate the plan. Five action items toward an effective funding and investment strategy Once a decision has been made to terminate a plan, careful thought should be given to the funding of the plan and the investment strategy. The key thing to keep in mind is that excess contributions may be wasted. When the plan is terminated, any assets that are left after the benefits are paid off cannot revert to the employer until both income tax and a 50% excise tax are paid so not much is left after the government gets its share. How to use a surplus is a complex topic, so if there is any potential for excess assets, the plan should seek expert advice as soon as there is any thought about termination. This potential for stranded assets drives much of the consideration around funding and investing when a plan termination is under way. For this reason, an LDI approach to the investment strategy can be important. To terminate a DB pension plan efficiently and effectively, plan sponsors can apply the following five key action items in developing a funding and investing strategy: 1. Measure the liability on a termination basis. It s important to understand the difference between the plan s termination liability and the liability while the plan is still maintained by the plan sponsor (the PPA funding target). If the termination liability is 110% of the PPA funding target, this is the level that will drive future funding and investment decisions. The liability calculation should be split based on the benefits expected to be paid as annuities and the benefits expected to be paid as lump sums. The nature of these two liabilities is slightly different, and the investment strategies that match the liabilities can be different as well. No smoothing of assets or averaging of interest Figure 1. Termination liability compared with PPA funding target: Hypothetical example The termination liability is higher than the active plan liability because of the cost of buying annuities for participants. $110.5M Group annuity contract: Actives, retirees, and term-vested $100M PPA funding target $65.5M Lump sums: Actives and term-vested $45M Termination liability Active plan liability 4

5 rates should be used. All measurements should be on a market basis because the termination distributions will be based on market interest rates. Assets that match the changes in the liability can best be identified only if the liability is measured using market interest rates. 2. Get the funded status up (but not too far). As explained previously, it will take additional assets above the ongoing liability to terminate the plan, but plan sponsors must be careful not to overfund (Figure 2). Sponsors will want to keep the asset level close to, but below, the level of the full cost to terminate the plan. When assets are distributed (lump sums are paid and annuities are purchased), the plan sponsor can make the final contribution to fully fund the plan. As an example, if the ongoing liability is $100 million and the anticipated amount needed to terminate the plan is $110 million, then funding to about $105 million may be about right. The final $5 million will be contributed at the time assets are distributed. Until an appropriate level of funding is reached, return-seeking assets may make sense. However, once that funding level is achieved, the higher investment risk that accompanies higher potential returns is not advisable. There is no upside to the risk of stranded assets, but plenty of downside. If equities or other returnseeking assets are used at lower levels of funding, they should be eliminated gradually as the funded status nears this final state Invest in assets that match the liability for expected annuity purchases. As explained previously, the termination liability will be higher than the PPA funding target perhaps 120% of the PPA funding target for this group of participants. Another perspective on this liability is simply that the discount rate used to measure it is lower, now that the plan is to be terminated. A lower discount rate results in a higher liability, and insurance companies will use much lower discount rates to price group annuity contracts for a termination than PPA requires for calculating the funding target while a plan is operating. Once the decision to terminate is made, the focus should be on matching this termination liability. A portfolio of bonds that closely matches Figure 2. Avoid overfunding Surplus assets may be difficult to access Surplus Assets dedicated to group annuity contract $110.5M Group annuity contract Additional assets needed to terminate $100M PPA funding target Assets dedicated to lump sums Lump sums Total assets Termination liability Active plan liability 5 For ideas on investment strategies while the plan s funded status is improving, see A dynamic investment policy that intuitively adapts to DB funding objectives, November 30, 2009, on institutional.vanguard.com. 5

6 the liability is the right strategy. The expected cash flows from the bonds and the pension plan can be matched so duration risk and curve risk are addressed to the greatest extent possible. Treasury bonds are likely to fit in the portfolio because of the lower discount rate (higher liability) being matched. This is especially true in a normal credit environment, i.e., when corporate spreads are not unusually high. It is not possible to precisely identify the portion of the liability that will be settled through an annuity purchase, since it is not possible to know how many or which participants will choose to take a lump-sum distribution of their benefits. However, reasonable estimates can be made in order to split the assets into the annuity portion and the lump-sum portion. 4. Invest in the assets that match the liability for expected lump-sum payments. This portion of the plan liability will be about equal to the ongoing PPA funding target (remember we are assuming use of the spot yield curve). Therefore an investment in long-duration, high-quality corporate bonds will match this liability well until the interest rate for determining lump-sum payments is fixed. The duration of this liability can be high (because the short-duration retiree payments are not part of it), so extended-duration investments such as long Treasury STRIPS may also be part of this portfolio. At some point before the actual distribution of assets, the lump-sum interest rate will be identified. This may occur from a few months to a year ahead of the actual distributions. As soon as the rate is identified, the liability no longer changes with market interest rates, and short-duration bonds and cash-type investments should be used to cover the expected amount to be paid as lump sums. purchases will be. Therefore, the estimated split of the liability described previously will need to be trued-up just before distribution. A final contribution to bring the assets up to the required level is then made so all of the lump-sum payments and the group annuity purchase are fully funded. From the time that a plan sponsor decides to terminate the plan until the time that assets are actually distributed, at least 12 months will pass but in some cases, it may take several years, if the funding level is still low. Whatever the circumstances, the five-phase process described above provides a good financial framework for moving toward plan termination. Conclusion: LDI is key The termination of a DB plan takes careful thought and planning on many fronts, and an effective strategy around funding and investments is important to mitigating risk during the process. The ultimate cost of terminating the plan becomes clear when annuities are purchased in the termination process. The option to pay some participants a lump sum instead of purchasing an annuity for them is likely to reduce the total cost of terminating the plan, but also introduces new considerations for funding the plan and investing the assets. LDI, in the form of matching assets, becomes a key component to limiting risk as different elements of the termination process are implemented. 5. Identify the final liability, true-up assets, and distribute. A plan sponsor will not know until close to the time of distribution what the split between lump-sum payments and annuity 6

7 P.O. Box 2600 Valley Forge, PA Connect with Vanguard > vanguard.com All investing is subject to risk. Annuity income guarantees are subject to the claims-paying ability of the issuing insurance company The Vanguard Group, Inc. All rights reserved. DBTSC

Glide path ALM: A dynamic allocation approach to derisking

Glide path ALM: A dynamic allocation approach to derisking Glide path ALM: A dynamic allocation approach to derisking Authors: Kimberly A. Stockton and Anatoly Shtekhman, CFA Removing pension plan risk through derisking investment strategies has become a major

More information

WHAT CAN WE LEARN FROM SIX COMMON ANNUITY PURCHASE MISCONCEPTIONS?

WHAT CAN WE LEARN FROM SIX COMMON ANNUITY PURCHASE MISCONCEPTIONS? THOUGHTCAPITAL OCTOBER 2014 PENSION RISK MANAGEMENT: WHAT CAN WE LEARN FROM SIX COMMON ANNUITY PURCHASE MISCONCEPTIONS? For decades, an annuity purchase has offered a safe and effective way for DB plan

More information

defined benefit plans

defined benefit plans The A corporate buck stops finance here: Vanguard approach to money managing market funds defined benefit plans Vanguard Research May 2015 Kimberly A. Stockton; Nathan Zahm, FSA n Of factors influencing

More information

LDI for DB plans with lump sum benefit payment options

LDI for DB plans with lump sum benefit payment options PRACTICE NOTE LDI for DB plans with lump sum benefit payment options Justin Owens, FSA, CFA, EA, Senior Asset Allocation Strategist Valerie Dion, CFA, FSA, Senior Consultant ISSUE: How does a lump sum

More information

Lump Sum Term-Vested Payouts Is Now the Time?

Lump Sum Term-Vested Payouts Is Now the Time? Institutional Group Lump Sum Term-Vested Payouts Is Now the Time? After a difficult five years overseeing pensions, plan sponsors in the U.S. and Canada are finding pension funding levels the healthiest

More information

CRS Report for Congress

CRS Report for Congress December 3, 2007 CRS Report for Congress Lump-Sum Distributions under the Pension Protection Act Summary Patrick Purcell Specialist in Income Security Domestic Social Policy Division The Pension Protection

More information

Estimating internal rates of return on income annuities

Estimating internal rates of return on income annuities Estimating internal rates of return on income annuities Vanguard research March 212 Executive summary. This paper presents computations of internal rates of return that would accrue to purchasers of fixed

More information

CURRENT CHALLENGES FOR EMPLOYEES IN PRIVATE EMPLOYER SPONSORED RETIREMENT PLANS

CURRENT CHALLENGES FOR EMPLOYEES IN PRIVATE EMPLOYER SPONSORED RETIREMENT PLANS CURRENT CHALLENGES FOR EMPLOYEES IN PRIVATE EMPLOYER SPONSORED RETIREMENT PLANS James Bishop, Bryant University, Suite C217 Unistructure, 1150 Douglas Pike, Smithfield RI 02917, jabishop@bryant.edu, 401-232-6356

More information

SUPPLEMENT TO ANNUAL FUNDING NOTICE OF MAYO PENSION PLAN FOR PLAN YEAR BEGINNING JANUARY 1, 2015 AND ENDING DECEMBER 31, 2015 ( Plan Year )

SUPPLEMENT TO ANNUAL FUNDING NOTICE OF MAYO PENSION PLAN FOR PLAN YEAR BEGINNING JANUARY 1, 2015 AND ENDING DECEMBER 31, 2015 ( Plan Year ) SUPPLEMENT TO ANNUAL FUNDING NOTICE OF MAYO PENSION PLAN FOR PLAN YEAR BEGINNING JANUARY 1, 2015 AND ENDING DECEMBER 31, 2015 ( Plan Year ) This is a temporary supplement to your annual funding notice.

More information

Rising Insurance Premiums: A New Impetus for Voluntary Funding of Corporate Defined Benefit Plans

Rising Insurance Premiums: A New Impetus for Voluntary Funding of Corporate Defined Benefit Plans Rising Insurance Premiums: A New Impetus for Voluntary Funding of Corporate Defined Benefit Plans December 21, 2014 by Markus Aakko, Rene Martel, Kate Tan of PIMCO The Pension Benefit Guaranty Corporation

More information

The Future of DB Plan Funding Under PPA, the Recovery Act and Relief Proposals

The Future of DB Plan Funding Under PPA, the Recovery Act and Relief Proposals Page 1 of 5 The Future of DB Plan Funding Under PPA, the Recovery Act and Relief Proposals The overlay of the dramatic decline in asset values of the last few months on the incipient tougher funding requirements

More information

Managing Financial Risk in Retirement and Benefits Programs

Managing Financial Risk in Retirement and Benefits Programs 2014 Managing Financial Risk in Retirement and Benefits Programs Translating Awareness into Action A report prepared by CFO Research in collaboration with Prudential Financial, Inc. Contents Research Sponsor

More information

Bulk Terminated Vested Lump Sum Offerings

Bulk Terminated Vested Lump Sum Offerings INSIGHTS Bulk Terminated Vested Lump Sum Offerings August 2015 203.621.1700 2015, Rocaton Investment Advisors, LLC EXECUTIVE SUMMARY * Bulk terminated vested lump sum offerings have become a hot topic

More information

Public Pension Finance Symposium May 2009. Session 1: Measuring Public Pension Liabilities The Contrasting Views

Public Pension Finance Symposium May 2009. Session 1: Measuring Public Pension Liabilities The Contrasting Views Public Pension Finance Symposium May 2009 Session 1: Measuring Public Pension Liabilities The Contrasting Views Cost Vs. Value: Financial Economics and Public Pension Plans Paul Angelo Cost vs Value Economic

More information

RETIREMENT PLAN STRATEGIES

RETIREMENT PLAN STRATEGIES 0213702 For Plan Sponsor and Advisor Use - Public Use Permitted. RETIREMENT PLAN STRATEGIES De-risking pensions emerging opportunity through lump sum cash-outs under the Pension Protection Act of 2006

More information

Fundamentals of Current Pension Funding and Accounting For Private Sector Pension Plans

Fundamentals of Current Pension Funding and Accounting For Private Sector Pension Plans Fundamentals of Current Pension Funding and Accounting For Private Sector Pension Plans An Analysis by the Pension Committee of the American Academy of Actuaries July 2004 The American Academy of Actuaries

More information

Pension Funding and Risk Management

Pension Funding and Risk Management Pension Funding and Risk Management White Paper Aligning Strategy To Manage Risk TABLE OF CONTENTS ABSTRACT... 2 BACKGROUND... 2 RECENT DEVELOPMENTS... 2 THE MARKET RESPONDS... 4 NEW OPTIONS: THE CAPTIVE

More information

Executive Summary. Introduction

Executive Summary. Introduction 2013 ERISA Advisory Council Private Sector Pension De-risking and Participant Protections Testimony of John G. Ferreira Partner, Morgan, Lewis & Bockius LLP 1 Executive Summary In my view, there is no

More information

How will the new RP-2014 mortality tables affect my DB plan strategy?

How will the new RP-2014 mortality tables affect my DB plan strategy? PRACTICE NOTE How will the new RP-2014 mortality tables affect my DB plan strategy? Justin Owens, EA, FSA, Asset Allocation Strategist ISSUE: The Society of Actuaries (SOA) recently released new mortality

More information

Retirement Plan Participants and/or Beneficiaries. Harvard Human Resources, Benefits. Annual Funding Notice Harvard University Retirement Plan

Retirement Plan Participants and/or Beneficiaries. Harvard Human Resources, Benefits. Annual Funding Notice Harvard University Retirement Plan Richard A. and Susan F. Smith Campus Center 1350 Massachusetts Avenue Cambridge, MA 02138 TO: FROM: SUBJECT: Retirement Plan Participants and/or Beneficiaries Harvard Human Resources, Benefits Annual Funding

More information

Obligation-based Asset Allocation for Public Pension Plans

Obligation-based Asset Allocation for Public Pension Plans Obligation-based Asset Allocation for Public Pension Plans Market Commentary July 2015 PUBLIC PENSION PLANS HAVE a single objective to provide income for a secure retirement for their members. Once the

More information

Pensions & Post-Retirement Benefits

Pensions & Post-Retirement Benefits FIN 551: Fundamental Analysis 1 Pensions & Post-Retirement Benefits The Issues Separate set of pension books Defined contribution vs. defined benefit plans» Problem exists with defined benefit plans Annual

More information

Vanguard Research June 2015

Vanguard Research June 2015 The Dynamic buck investment stops here: policy Vanguard statement A money plan market for action funds Vanguard Research June 2015 Paul M. Bosse, CFA Regulatory changes in pension accounting over the past

More information

Lump Sum Payments for Terminated Vested Participants. 2012 Retirement Webinar Series March 8, 2012

Lump Sum Payments for Terminated Vested Participants. 2012 Retirement Webinar Series March 8, 2012 Lump Sum Payments for Terminated Vested Participants 2012 Retirement Webinar Series March 8, 2012 Lump Sum Payments for Terminated Vested Participants Today s Participants Joe McDonald Aon Hewitt Byron

More information

Lump-Sum Pension Payments: 2008 and Beyond

Lump-Sum Pension Payments: 2008 and Beyond BENEFITS INFORMATION BULLETIN Milliman Employee Benefits December 14, 2007 BIB 07-01 Effective for plan years beginning in 2008, ERISA-covered defined benefit retirement plans that offer participants lump-sum

More information

Pensions and the Future of Retained Risk

Pensions and the Future of Retained Risk Institutional Investor Corporate Financial Executive Summit Pensions and the Future of Retained Risk June 19, 2013 Glenn O Brien Managing Director, Pension Risk Transfer Prudential Retirement 0246029-00001-00

More information

PENSION MANAGEMENT & FORECASTING SOFTWARE

PENSION MANAGEMENT & FORECASTING SOFTWARE PENSION MANAGEMENT & FORECASTING SOFTWARE PMFS Copyright 2012 by Segal Advisors, Inc. All rights reserved. Table of Contents Overview... 1 Policy Analysis... 2 Financial Planning & Forecasting Actual Illustrations...

More information

GM Pension Settlement Actions

GM Pension Settlement Actions Consulting Retirement GM Pension Settlement Actions And Considerations for Plan Sponsors June 2012 On June 1, 2012, General Motors Co. (GM) announced a program that will settle approximately $26 billion

More information

Glossary for Use with the Comprehensive Benefit Funding Plan

Glossary for Use with the Comprehensive Benefit Funding Plan Caring For Those Who Serve 1901 Chestnut Avenue Glenview, Illinois 60025-1604 1-800-851-2201 www.gbophb.org Glossary for Use with the Comprehensive Benefit Funding Plan Accumulated Post-Retirement Benefit

More information

Changing Discount Rates for Determining Lump Sums An Analysis by the Pension Committee of the American Academy of Actuaries

Changing Discount Rates for Determining Lump Sums An Analysis by the Pension Committee of the American Academy of Actuaries Changing Discount Rates for Determining Lump Sums An Analysis by the Pension Committee of the American Academy of Actuaries Donald J. Segal, FSA, MAAA, Chair Ron Gebhardtsbauer, FSA, MAAA, Senior Pension

More information

Perspectives March 2015

Perspectives March 2015 Perspectives March 2015 Liability-Driven Perspectives Hibernation: Managing a Sleeping Bear F. Gary Knapp, CFA Managing Director and Head of Liability-Driven Investment Strategies Many asset managers today

More information

MAP-21 SUPPLEMENT TO ANNUAL FUNDING NOTICE

MAP-21 SUPPLEMENT TO ANNUAL FUNDING NOTICE MAP-21 SUPPLEMENT TO ANNUAL FUNDING NOTICE OF THE ACADEMY OF NATURAL SCIENCES OF PHILADELPHIA PENSION PLAN FOR PLAN YEAR BEGINNING JANUARY 1, 2013 AND ENDING DECEMBER 31, 2013 ( Plan Year ) This is a temporary

More information

De-risking Alternatives for Plan Sponsors Compliance Requirements. April 16, 2015 Presented by: Michael Falk, Erin Kartheiser, and Steve Flores

De-risking Alternatives for Plan Sponsors Compliance Requirements. April 16, 2015 Presented by: Michael Falk, Erin Kartheiser, and Steve Flores De-risking Alternatives for Plan Sponsors Compliance Requirements April 16, 2015 Presented by: Michael Falk, Erin Kartheiser, and Steve Flores Today s elunch Presenters Michael Falk Partner, Employee Benefits

More information

Poll Highlights. PENSION MANAGEMENT RESEARCH PANEL Poll: DB Pension Management Mid-Year 2014

Poll Highlights. PENSION MANAGEMENT RESEARCH PANEL Poll: DB Pension Management Mid-Year 2014 PENSION MANAGEMENT RESEARCH PANEL Poll: DB Pension Management Mid-Year 2014 Poll Highlights In the summer of 2014, the Pension Management Research Panel conducted a poll to uncover current practices in

More information

Pension Fund Portfolio Management

Pension Fund Portfolio Management CHAPTER 4 Pension Fund Portfolio Management P ension plans (also known as pension schemes or superannuation plans) manage assets that are used to provide workers with a flow of income during their retirement

More information

Application of Canadian Pension Plan Solvency Standards

Application of Canadian Pension Plan Solvency Standards Application of Canadian Pension Plan Solvency Standards Introduction The Canadian Standards of Practice broadly apply to any arrangement that provides retirement income irrespective of whether it s funded

More information

LDI Fundamentals: Is Our Strategy Working? A survey of pension risk management metrics

LDI Fundamentals: Is Our Strategy Working? A survey of pension risk management metrics LDI Fundamentals: Is Our Strategy Working? A survey of pension risk management metrics Pension plan sponsors have increasingly been considering liability-driven investment (LDI) strategies as an approach

More information

Vanguard Financial Education Series. retirement income. How to turn retirement savings into

Vanguard Financial Education Series. retirement income. How to turn retirement savings into Vanguard Financial Education Series retirement income How to turn retirement savings into retirement income You ve been saving for retirement for years. Now that your retirement is near, how will you convert

More information

April 29, 2016. Dear Colleague,

April 29, 2016. Dear Colleague, Loral R. Blinde Vice President People & Employee Services April 29, 2016 Dear Colleague, I am pleased to share the enclosed Annual Funding Notice, which details information about your pension plan, the

More information

PLAN SPONSOR BASICS: CASH BALANCE PLANS. Presenters: John Ferreira and Jared Rogers March 31, 2015. 2015 Morgan, Lewis & Bockius LLP

PLAN SPONSOR BASICS: CASH BALANCE PLANS. Presenters: John Ferreira and Jared Rogers March 31, 2015. 2015 Morgan, Lewis & Bockius LLP PLAN SPONSOR BASICS: CASH BALANCE PLANS Presenters: John Ferreira and Jared Rogers March 31, 2015 2015 Morgan, Lewis & Bockius LLP Overview of Today s Training Introduction to Cash Balance Plans Brief

More information

Interest rate swaptions downside protection you can live with

Interest rate swaptions downside protection you can live with By: Michael Thomas, CFA, Head of Consulting and Chief Investment Officer JUNE 2011 Greg Nordquist, CFA, Director, Overlay Strategies Interest rate swaptions downside protection you can live with When it

More information

Pension De-Risking Strategies Latest Developments and Trends. June 30, 2015

Pension De-Risking Strategies Latest Developments and Trends. June 30, 2015 Pension De-Risking Strategies Latest Developments and Trends June 30, 2015 Speakers Contact Information Tonya Manning, FSA, EA, MAAA Chief Actuary, Wealth Practice tonya.manning@xerox.com Phil Parker,

More information

The Impact of Pension Reform Proposals on Claims Against the Pension Insurance Program, Losses to Participants, and Contributions

The Impact of Pension Reform Proposals on Claims Against the Pension Insurance Program, Losses to Participants, and Contributions The Impact of Pension Reform Proposals on Claims Against the Pension Insurance Program, Losses to Participants, and Contributions Pension Benefit Guaranty Corporation October 26, 2005 Contents Introduction

More information

FUNDING NEW JERSEY PUBLIC EMPLOYEE RETIREMENT SYSTEMS

FUNDING NEW JERSEY PUBLIC EMPLOYEE RETIREMENT SYSTEMS FUNDING NEW JERSEY PUBLIC EMPLOYEE RETIREMENT SYSTEMS N ew Jersey has six major Stateadministered retirement systems. Along with the required contributions of the public employees, these systems are funded

More information

Basics of Corporate Pension Plan Funding

Basics of Corporate Pension Plan Funding Basics of Corporate Pension Plan Funding A White Paper by Manning & Napier www.manning-napier.com Unless otherwise noted, all figures are based in USD. 1 Introduction In general, a pension plan is a promise

More information

The 2004 Report of the Social Security Trustees: Social Security Shortfalls, Social Security Reform and Higher Education

The 2004 Report of the Social Security Trustees: Social Security Shortfalls, Social Security Reform and Higher Education POLICY BRIEF Visit us at: www.tiaa-crefinstitute.org. September 2004 The 2004 Report of the Social Security Trustees: Social Security Shortfalls, Social Security Reform and Higher Education The 2004 Social

More information

Reforming Private DB Plans

Reforming Private DB Plans Reforming Private DB Plans November 2006 Colin Pugh, FCIA 1 Agenda Plan design reform (main topic). DB actuarial funding methodology. DB actuarial funding requirements. DB pension fund investments }one

More information

What Is the Funding Status of Corporate Defined-Benefit Pension Plans in Canada?

What Is the Funding Status of Corporate Defined-Benefit Pension Plans in Canada? Financial System Review What Is the Funding Status of Corporate Defined-Benefit Pension Plans in Canada? Jim Armstrong Chart 1 Participation in Pension Plans Number of Plans Number of Members Thousands

More information

Vanguard Financial Education Series investing. How to invest your retirement savings

Vanguard Financial Education Series investing. How to invest your retirement savings Vanguard Financial Education Series investing How to invest your retirement savings During your working life, you ve saved and invested for retirement. Now that you re finally reaching retirement, consider

More information

Knowledge & Insights 2014 Survey

Knowledge & Insights 2014 Survey Knowledge & Insights 2014 Survey Economic assumptions in accounting for pension and other post retirement benefits Highlights of our annual survey results is pleased to provide a survey of the assumptions

More information

ANNUAL FUNDING NOTICE For THE UNIVERSITY OF CHICAGO PENSION PLAN FOR STAFF EMPLOYEES. Introduction

ANNUAL FUNDING NOTICE For THE UNIVERSITY OF CHICAGO PENSION PLAN FOR STAFF EMPLOYEES. Introduction ANNUAL FUNDING NOTICE For THE UNIVERSITY OF CHICAGO PENSION PLAN FOR STAFF EMPLOYEES Introduction This notice includes important information about the funding status of your single employer pension plan

More information

This document introduces the principles behind LDI, how LDI strategies work and how to decide on an appropriate approach for your pension scheme.

This document introduces the principles behind LDI, how LDI strategies work and how to decide on an appropriate approach for your pension scheme. for professional clients only. NOT TO BE DISTRIBUTED TO RETAIL CLIENTS. An introduction TO Liability driven INVESTMENT HELPING PENSION SCHEMES ACHIEVE THEIR ULTIMATE GOAL Every defined benefit pension

More information

for life A predictable monthly income stream. Option to choose an income that s guaranteed to last a lifetime.

for life A predictable monthly income stream. Option to choose an income that s guaranteed to last a lifetime. for life A predictable monthly income stream. Option to choose an income that s guaranteed to last a lifetime. Financial peace of mind during retirement. To enjoy a secure retirement, you need more than

More information

Annuities. Introduction 2. What is an Annuity?... 2. How do they work?... 3. Types of Annuities... 4. Fixed vs. Variable annuities...

Annuities. Introduction 2. What is an Annuity?... 2. How do they work?... 3. Types of Annuities... 4. Fixed vs. Variable annuities... An Insider s Guide to Annuities Whatever your picture of retirement, the best way to get there and enjoy it once you ve arrived is with a focused, thoughtful plan. Introduction 2 What is an Annuity?...

More information

Your pension benefit options

Your pension benefit options 2 Your pension benefit options Traditional pension plans generally provide the option of a lump-sum payment or a fixed monthly payment for life through an annuity. The fixed monthly payment amount is usually

More information

GREAT LAKES ADVISORS THE PENSION PROMISE SESSION THREE. A Presentation to the: National Conference on Public Employee Retirement Systems

GREAT LAKES ADVISORS THE PENSION PROMISE SESSION THREE. A Presentation to the: National Conference on Public Employee Retirement Systems GREAT LAKES ADVISORS THE PENSION PROMISE SESSION THREE Presenter: Kelly Weller Managing Director, Client Service (312) 353-3733 kweller@greatlakesadvisors.com A Presentation to the: National Conference

More information

Other Post-employment Benefits (OPEB): Funding Solutions in the Public Sector. A Guide to Welfare Benefit Management Solutions

Other Post-employment Benefits (OPEB): Funding Solutions in the Public Sector. A Guide to Welfare Benefit Management Solutions welfare benefit funding Other Post-employment Benefits (OPEB): Funding Solutions in the Public Sector A Guide to Welfare Benefit Management Solutions Welfare benefit funding The Governmental Accounting

More information

Should I Buy an Income Annuity?

Should I Buy an Income Annuity? The purchase of any financial product involves a trade off. For example when saving for retirement, you are often faced with making a trade off between how much you want to protect your investments from

More information

This paper reviews the legal requirements governing the splitting of the US pension plan assets, in conjuction with a corporate sale or spinoff.

This paper reviews the legal requirements governing the splitting of the US pension plan assets, in conjuction with a corporate sale or spinoff. SPLITTING U.S. PENSION PLAN ASSETS IN A CORPORATE TRANSACTI~ Mary S. Riebold, U.S.A. This paper reviews the legal requirements governing the splitting of the US pension plan assets, in conjuction with

More information

Cash Balance Pension Plans Retirement Savings on Steroids. Brief History of Cash Balance Plans

Cash Balance Pension Plans Retirement Savings on Steroids. Brief History of Cash Balance Plans Cash Balance Pension Plans Retirement Savings on Steroids Luke Bailey 214.651.4572 luke.bailey@strasburger.com Brad Oxford 210.250.6114 brad.oxford@strasburger.com Brief History of Cash Balance Plans Devised

More information

Earning Cash Balance Pay Credits

Earning Cash Balance Pay Credits You Have a Choice New Cash Balance Pension You Have a Choice The important thing to understand is this: If you were hired through December 31, 2012 you don t have to change to the new cash balance pension

More information

Actuarial Speak 101 Terms and Definitions

Actuarial Speak 101 Terms and Definitions Actuarial Speak 101 Terms and Definitions Introduction and Caveat: It is intended that all definitions and explanations are accurate. However, for purposes of understanding and clarity of key points, the

More information

A personal approach to financial planning. Welcome to Towry. www.towry.com

A personal approach to financial planning. Welcome to Towry. www.towry.com A personal approach to financial planning Welcome to Towry www.towry.com I have been advised by Towry for approximately six years and have been delighted by the highly personalised service they provide.

More information

Dollar-cost averaging just means taking risk later

Dollar-cost averaging just means taking risk later Dollar-cost averaging just means taking risk later Vanguard research July 2012 Executive summary. If a foundation receives a $20 million cash gift, what are the tradeoffs to consider between investing

More information

Annuitization lessons from the UK

Annuitization lessons from the UK IMF Seminar on Ageing, Financial Risk Management and Financial Stability The views expressed in this paper are those of the author(s) only, and the presence of them, or of links to them, on the IMF website

More information

Final DB Funding Relief Analysis

Final DB Funding Relief Analysis We discussed the details of the new defined benefit (DB) plan funding relief legislation, signed into law on June 25, 2010. Below, we analyze how this legislation may affect different plans. For general

More information

Retirement sustainability for defined contribution plan participants

Retirement sustainability for defined contribution plan participants By: Daniel Gardner, Defined Contribution Analyst MAY 2011 Sam Pittman, Senior Research Analyst Retirement sustainability for defined contribution plan participants Defined benefit pensions have largely

More information

Taking a Company Stock Distribution From the Chevron Employee Savings Investment Plan

Taking a Company Stock Distribution From the Chevron Employee Savings Investment Plan Taking a Company Stock Distribution From the Chevron Employee Savings Investment Plan The tax treatment of Chevron stock distributions from the Chevron Employee Savings Investment Plan (ESIP) can vary

More information

Long duration bond benchmarks for corporate pension plans

Long duration bond benchmarks for corporate pension plans By: Yoshie Phillips, CFA, Senior Research Analyst OCTOBER 2011 Long duration bond benchmarks for corporate pension plans Issue: With the growth of liability-driven investing (LDI), many corporate pension

More information

THE INSURANCE ORGANIZER

THE INSURANCE ORGANIZER THE INSURANCE ORGANIZER SENIOR SOLUTIONS OF AMERICA, INC. www.todaysseniors.com COPYRIGHT 2007 SENIOR SOLUTIONS OF AMERICA, INC. ALL RIGHTS RESERVED. ORGANIZING YOUR INSURANCE POLICIES Your safe deposit

More information

Will They Take the Money and Run?

Will They Take the Money and Run? Will They Take the Money and Run? A Perspective on Pension Lump Sum Cash-Outs November 2012 Lockton Retirement Services The tide is changing in favor of personal financial conservatism. Gone are the days

More information

De-risking the Plan The Pros and Cons of Hibernation and Annuity Buyouts

De-risking the Plan The Pros and Cons of Hibernation and Annuity Buyouts De-risking the Plan The Pros and Cons of Hibernation and Annuity Buyouts David G. Eichhorn, CFA Managing Director, Investment Strategies NISA Investment Advisors, L.L.C. 2014 NISA Investment Advisors,

More information

Managing cash in your portfolio

Managing cash in your portfolio Managing cash in your portfolio Vanguard research October 2012 Executive summary. Investors may maintain cash in their portfolios for a number of reasons, such as to cover daily living expenses and in

More information

PRELIMINARY REPORT THE PHILOSOPHY UNDERLYING THE DETERMINATION OF LUMP-SUM TRANSFER VALUES FROM PENSION PLANS TASK FORCE ON TRANSFER VALUES

PRELIMINARY REPORT THE PHILOSOPHY UNDERLYING THE DETERMINATION OF LUMP-SUM TRANSFER VALUES FROM PENSION PLANS TASK FORCE ON TRANSFER VALUES PRELIMINARY REPORT THE PHILOSOPHY UNDERLYING THE DETERMINATION OF LUMP-SUM TRANSFER VALUES FROM PENSION PLANS TASK FORCE ON TRANSFER VALUES OCTOBER 1998 1998 Canadian Institute of Actuaries Cette publication

More information

Global Institutional Annuity Market Update

Global Institutional Annuity Market Update Global Institutional Annuity Market Update Liability De-Risking / Plan Terminations Mid-Year 2012 Hewitt EnnisKnupp, An Aon Company 2012 Aon Corporation Brief Description: This newsletter reviews the international

More information

Struggling of Japanese corporate pension plan with the low interest rate environment

Struggling of Japanese corporate pension plan with the low interest rate environment 1 Struggling of Japanese corporate pension plan with the low interest rate environment Takashi Kato 1 Abstract: Most plan sponsors in developed countries are seeking ways to maintain a sustainable corporate

More information

CITY OF AVENTURA POLICE OFFICERS RETIREMENT PLAN FINANCIAL STATEMENTS SEPTEMBER 30, 2014, AND 2013

CITY OF AVENTURA POLICE OFFICERS RETIREMENT PLAN FINANCIAL STATEMENTS SEPTEMBER 30, 2014, AND 2013 CITY OF AVENTURA POLICE OFFICERS RETIREMENT PLAN FINANCIAL STATEMENTS SEPTEMBER 30, 2014, AND 2013 CITY OF AVENTURA POLICE OFFICERS RETIREMENT PLAN FINANCIAL STATEMENTS SEPTEMBER 30, 2014, AND 2013 TABLE

More information

GUIDANCE NOTE 454 AAS 25 - "ACCRUED BENEFITS" UNDER DEFINED BENEFIT SUPERANNUATION FUNDS

GUIDANCE NOTE 454 AAS 25 - ACCRUED BENEFITS UNDER DEFINED BENEFIT SUPERANNUATION FUNDS THE INSTITUTE OF ACTUARIES OF AUSTRALIA A.C.N. 000 423 656 GUIDANCE NOTE 454 AAS 25 - "ACCRUED BENEFITS" UNDER DEFINED BENEFIT SUPERANNUATION FUNDS APPLICATION Actuaries who are required to calculate Accrued

More information

Lump Sums under the Pension Protection Act of 2006

Lump Sums under the Pension Protection Act of 2006 Lump Sums under the Pension Protection Act of 2006 November 15, 2006 An article in the October 25th Wall Street Journal article entitled Changes in Defined-Benefit Plans Affect Many Highly-Paid Workers;

More information

ANNUAL FUNDING NOTICE For The Johns Hopkins University Support Staff Pension Plan. Introduction

ANNUAL FUNDING NOTICE For The Johns Hopkins University Support Staff Pension Plan. Introduction Human Resources Benefits Service Center Johns Hopkins at Eastern 1101 E. 33 rd Street, Suite D100 Baltimore, MD 21218-2696 410-516-2000 / Fax 443-997-5820 ANNUAL FUNDING NOTICE For The Johns Hopkins University

More information

April 2015. Dear Consolidated Edison Retirement Plan Participant:

April 2015. Dear Consolidated Edison Retirement Plan Participant: Consolidated Edison Company of New York, Inc. 4 Irving Place New York NY 10003-0987 April 2015 Dear Consolidated Edison Retirement Plan Participant: The Consolidated Edison Retirement Plan is subject to

More information

Pensions and Corporate Financial Performance Intricately Linked. Volume 2

Pensions and Corporate Financial Performance Intricately Linked. Volume 2 Pensions and Corporate Financial Performance Intricately Linked Volume 2 Pensions and Corporate Financial Performance Intricately Linked Volume 2 Table of Contents Introduction 2 Benefit Policy 4 Funding

More information

DEFERRED RETIREMENT OPTION PROGRAMS. Cindy Birley and Kent Eichstadt* William M. Mercer, Inc.

DEFERRED RETIREMENT OPTION PROGRAMS. Cindy Birley and Kent Eichstadt* William M. Mercer, Inc. DEFERRED RETIREMENT OPTION PROGRAMS by Cindy Birley and Kent Eichstadt* William M. Mercer, Inc. Introduction Deferred retirement option programs (commonly referred to as DROP programs) were first introduced

More information

Mark-to-Market Accounting for Corporate Pension Plans

Mark-to-Market Accounting for Corporate Pension Plans Institutional Asset Management September 2005 Mark-to-Market Accounting for Corporate Pension Plans By John Stone, CFA and Paul Sweeting, FIA The British are coming! The British are coming! n a clear night

More information

TREASURY FACT SHEET: HELPING AMERICAN FAMILIES ACHIEVE RETIREMENT SECURITY BY EXPANDING LIFETIME INCOME CHOICES

TREASURY FACT SHEET: HELPING AMERICAN FAMILIES ACHIEVE RETIREMENT SECURITY BY EXPANDING LIFETIME INCOME CHOICES TREASURY FACT SHEET: HELPING AMERICAN FAMILIES ACHIEVE RETIREMENT SECURITY BY EXPANDING LIFETIME INCOME CHOICES In September 2009, President Obama announced several new steps to make it easier for American

More information

Are voluntary contributions right for your corporate pension plan?

Are voluntary contributions right for your corporate pension plan? Asset management 26 pt. (6.5 mm) Fourth quarter 2012 Are voluntary contributions right for your corporate pension plan? White paper 22 pt. (5.5 mm) 18 pt. (4.5 mm) Executive summary 3 Increasing corporate

More information

Using liability-driven investing to derisk corporate pension plans

Using liability-driven investing to derisk corporate pension plans EATON VANCE NOVEMBER 2015 TIMELY THINKING Using liability-driven investing to derisk corporate pension plans SUMMARY Defined benefit (DB) pension funding ratios remain near decade lows. Underfunded pension

More information

Cash Balance Plan Overview

Cash Balance Plan Overview Cash Balance Plan Overview A Cash Balance Plan is a type of qualified retirement plan that is a hybrid between a traditional Defined Contribution Plan and a traditional Defined Benefit Plan. Like traditional

More information

Should I Buy an Income Annuity?

Should I Buy an Income Annuity? Prepared For: Valued Client Prepared By: CPS The purchase of any financial product involves a trade off. For example when saving for retirement, you are often faced with making a trade off between how

More information

Vested Termination Lump Sum Window Right for your company? September 25, 2014

Vested Termination Lump Sum Window Right for your company? September 25, 2014 Vested Termination Lump Sum Window Right for your company? September 25, 2014 Agenda Background Considerations Administration Communications Wrap Up Q&A 2 Speakers Dean Aloise, ASA, FCA, EA, MAAA Managing

More information

Scheme funding statistics

Scheme funding statistics May 2014 Scheme funding statistics Valuations and recovery plans of UK defined benefit and hybrid pension schemes Contents Overview 3 Tranche 7 3 Market conditions 3 Funding 4 Discount rates 5 Life expectancies

More information

Variable Annuity Pension Plans: A Balanced Approach to Retirement Risk

Variable Annuity Pension Plans: A Balanced Approach to Retirement Risk Variable Annuity Pension Plans: A Balanced Approach to Retirement Kelly Coffing, EA, FSA, MAAA Principal and Consulting Actuary Milliman, Seattle, Washington Grant Camp, EA, FSA, MAAA, Consulting Actuary

More information

Regional Transportation Authority Pension Plan (A Pension Trust Fund of the Regional Transportation Authority)

Regional Transportation Authority Pension Plan (A Pension Trust Fund of the Regional Transportation Authority) (A Pension Trust Fund of the Regional Transportation Authority) Financial Report Year Ended December 31, 2014 Table of Contents Page Independent Auditor s Report 1-2 Management s Discussion and Analysis

More information

FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN

FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN F I N A N C I A L S T A T E M E N T S For CANADIAN FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN For year ended DECEMBER 31, 2009 AUDITORS' REPORT To the Chairperson and Members of the Employee Pension

More information

Pension Plan Benefits on Retirement

Pension Plan Benefits on Retirement Pension Plan Benefits on Retirement MARCH 2014 What is inside How is Your Pension Benefit Determined? Assumptions used in Preparing a Pension Estimate... 2 Formula Pension...............................................................................

More information

Should I Buy an Income Annuity?

Should I Buy an Income Annuity? Prepared For: Fred & Wilma FLINT Prepared By: Don Maycock The purchase of any financial product involves a trade off. For example when saving for retirement, you are often faced with making a trade off

More information

PRESENT LAW AND BACKGROUND RELATING TO EMPLOYER-SPONSORED DEFINED BENEFIT PENSION PLANS AND THE PENSION BENEFIT GUARANTY CORPORATION ( PBGC )

PRESENT LAW AND BACKGROUND RELATING TO EMPLOYER-SPONSORED DEFINED BENEFIT PENSION PLANS AND THE PENSION BENEFIT GUARANTY CORPORATION ( PBGC ) PRESENT LAW AND BACKGROUND RELATING TO EMPLOYER-SPONSORED DEFINED BENEFIT PENSION PLANS AND THE PENSION BENEFIT GUARANTY CORPORATION ( PBGC ) Scheduled for a Public Hearing Before the SENATE COMMITTEE

More information

Protect your plan savings for retirement. New York University 457(b) Deferred Compensation Plan

Protect your plan savings for retirement. New York University 457(b) Deferred Compensation Plan Protect your plan savings for retirement New York University 457(b) Deferred Compensation Plan Whether you have left the workforce or have simply changed employers, it is important to protect the money

More information